OECD warns prolonged Hormuz energy shock could slam global growth, jobs and prices

FRANKFURT, Germany (AP) — Prolonged disruption of energy supplies from the Middle East due to the Iran war would deal a severe blow to the global economy, sending some countries into recession and spreading inflation and higher unemployment, the Organization for Economic Cooperation and Development said in a report Wednesday.

The OECD’s analysis provides the most comprehensive institutional assessment to date of the economic fallout from the closure of the Strait of Hormuz, which has largely choked off crude oil, fuel and natural gas supplies from the Persian Gulf. The report warns that the consequences of sharply higher energy prices and inflation would be felt around the world, with global growth slumping to levels not seen except for major setbacks like the COVID-19 pandemic and the global financial crisis of the late 2000s.

Hardest hit would be Asian economies that depend on crude oil, fuel and natural gas from the Persian Gulf, supplies that have been largely choked off by the closure of the Strait of Hormuz due to the risk of Iranian attack, the OECD said. Poorer countries where people spend more of their incomes on fuel and food would also be severely affected.

Under the OECD’s prolonged disruption scenario, global growth slows from 3.4% last year to 2.1% this year and 1.8% in 2027, potentially pushing some economies into or close to recession. The organization said the consequences of sharply higher energy prices and inflation would be felt around the world.

The OECD’s warning comes as the Iran war, now in its fourth month, continues to disrupt global energy markets. The Strait of Hormuz, a 21-mile-wide chokepoint between the Persian Gulf and the Gulf of Oman, is a critical passage for about a fifth of the world’s oil supply. Its closure has sent energy prices soaring and forced governments around the world to tap strategic reserves and seek alternative supply routes.

The report’s findings align with earlier warnings from the International Monetary Fund and the International Energy Agency, which have each downgraded their global growth forecasts since the conflict began. The OECD’s analysis, however, provides the most detailed scenario modeling of a prolonged disruption, projecting that the economic damage would deepen through 2027 if the Strait remains closed.